Spread tightens on Iraq notes due 2023; Qatar banks in focus; primary market hushed

By Rebecca Melvin

New York, Oct. 17 – The Republic of Iraq’s 6¾% notes due 2023, of which $1 billion priced on Aug. 2, were tighter by about 25 basis points early Tuesday after widening out the past week.

On Monday the Iraqi bonds closed about 10 bps wider.

Iraqi troops were reported to have seized the city of Kirkuk, and parts of the Kurdish forces agreed to withdraw, relinquishing control over a large area of northern Iraq. But tensions remained high given Kurdish forces, which fought hard to drive Islamic State from the area, were not unified about whether a withdraw was justified.

The move followed a referendum in late September in which the Kurds voted overwhelmingly in favor or independence despite opposition to the referendum by Iraq and other countries including Turkey.

The potential for disruptions in the oil rich Kirkuk provinces have boosted oil prices in recent days, and on Tuesday Brent crude rose 0.67% to $58.20 per barrel. But West Texas Intermediate crude pared losses late in the session after falling as much as 1.3% intraday, closing up a penny at $57.88 a barrel.

Elsewhere, Qatar National Bank reported strong results for its third quarter, with the bank’s financials remaining strong despite the ongoing crisis between Qatar and a Saudi-led group of countries demanding changes regarding what it views as policies supportive of terrorism.

EM market players are watching for new Qatari debt, including Qatar National Bank, which needs to refinance funding that is maturing in the next year.

Kenya was in focus as street protests started after the main opposition party decided to withdraw from a repeat election slated for Oct. 26. Kenya’s 6 7/8% notes due 2024 were little changed by about 10 bps wider over the week.

The emerging primary markets were quiet for a second straight day while the story in financial markets continued to be the run up in equities and the fact that the Dow Jones industrial average crossed over the threshold of 23,000 for the first time. The Dow traded at that level briefly before slipping back and closing a hair below it at 22,997.44, which was up 40.48 points or 0.2%.

The S&P 500 index added 1.72 points to 2,559.36, while the Nasdaq Composite slipped less than a point 6,623.66.

The indexes have climbed relentlessly this year on a combination of corporate earnings and optimism related to global economic growth. The Dow is up 25% since the U.S. presidential election in November 2016. There are concerns that stocks are trading at very high valuations, but these concerns keep getting brushed aside in the face of strong global growth.

Central bank policy is the other piece of the puzzle that investors are trying to discern. If and when central banks tighten policy and raise rates, stocks are expected to become less attractive compared to bonds.

The European Central Bank may provide more clarity on policy next week when it talks about plans to slow its monthly asset purchases. The end of its bond buying program will likely mark the beginning of higher interest rates, which have not been raised since 2011.

© 2015 Prospect News.
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